Belgarath

We have a lot of plans with life insurance in them. I agree that administrative difficulty is magnified. Just depends upon the agent/company selling the insurance. Some good, some not so good, some terrible! But there can be some good reasons to do it. Assuming you have a good CPA/attorney/planner who takes into account the overall picture, including estate planning, then the opportunity to deduct life insurance premiums shouldn't be ignored. And if you do 412(i) plans, and life insurance is needed by the client anyway, then it can help generate some enormous deductions. (But don't ever put life insurance in a plan just for the sake of deductions - the client has to need it!)

I'm not sure I agree. The term employee, as used in the new regs, is defined in 1.401(a)(4)-12 as an employee within the meaning of 1.410(B)-9 who benefits under the plan for the plan year... Now, assuming you pass the nondiscrimination tests as you indicated, then those employees receiving a zero allocation are not employees under the regulation, and therefore don't need to be given the Gateway allocation. At least, this is the interpretation we're going to take until there is any guidance otherwise. I think it's statutorily correct, at least. Hopefully the IRS won't think otherwise.

No. The premature distribution tax is imposed on the amount of the distribution includable in gross income. IRC 72(t)

Depends upon who you ask. There are experts who come down on both sides of the issue. I don't like it myself. If you take the position that it is allowable, you'd definitely have to offer to all participants - this would be a benefits/rights/features issue. As far as the benefit to the participant, it actually would be a benefit, because the plan is providing it, and the participant isn't paying for it. Would just require higher contributions from the employer.

I think we are basically agreeing. "most plans" will be those of a sponsor that has submitted timely for GUST, and employers who have adopted or certified intent to adopt. So you would indeed have until at LEAST 12-31-02, and maybe later. I was just clarifying the GUST remedial amendment period.

Actually, assuming the employer either adopts a document from a sponsor who submitted timely for GUST, or certifies jointly with the sponsor prior to 12-31-01 that they will adopt such document when it becomes available, will have until the later of the following dates: 1. 12-31-2002, or 2. The last day of the 12th month following the month in which the latest of the sponsor's GUST approval letters are issued. See IRS Notice 2001-42, which modifies Rev. Proc. 2000-20.

Yes.

Anybody know much about these? I know what they are, and the theory, but I'm having trouble justifying some of what is going on with regard to qualified plans, and maybe the IRS has provided guidance I don't know about! We had a client who is a PEO. Member companies would sign a contract with the PEO, and essentially "terminate" their employees, and hire them back from the PEO. The PEO has no right to hire and fire them, cannot direct their work, hours, etc... essentially they are a payroll service. They wanted a 401(k) for the PEO, and then individual companies would have a cross-tested plan covering only the keys, while the non-keys would participate in the 401(k). We told them to go find another TPA. But I'm curious as to what other folks out there think of this type of arrangement, and whether you are aware of any IRS guidance regarding PEO's and their sponsorship of qualified plans. Thanks in advance.

I'd be very careful on the bonding issue. (my personal opinion is that not getting the bond is just begging for trouble.) Specifically, make sure you check your plan document, as many documents require the bonding. In addition, although I haven't seen anything suggesting this, I'd be concerned about the liability for violating the fiduciary prudence standards of ERISA 404(a)(1)(B). I'll bet the DOL could take a fiduciary to the cleaners on this.

Assuming that the designated beneficiary(ies) is/are individual(s), then distributions for years after the year of the owners death can be determined using the beneficiary's single life expectancy. (ie the new rules) So yes, you can use the new rules in the situations you described. I'm assuming that the calculation for the year of death (2000) in your second situation was properly calculated using the OLD rules.

Interesting question. First, I'd check the document to see if loans are even allowed with a repayment period extending beyond a certain age (65, for example) - most documents I've seen do this to avoid practical problems such as this one. If the document terms have been violated, they have other problems! Assuming this is a valid loan under the terms of the document, I agree with ERead that the outstanding balance is still considered in the account balance. I see no alternative to reporting the required amount, (over and above the available cash) as a deemed distribution. But I haven't reread the deemed distribution rules to see if they address this specific situation. Through the haze of memory, I don't recall that they do...

Appleby - Since the IRS is also the agency charged with enforcing this, and the Rev. Proc. represents their thinking on the issue, I don't see a problem. Maybe my stance on this is too relaxed, but I don't see it as an issue that causes the IRS any concern, and I'd be very surprised, even if they changed their viewpoint, that they would try to enforce it retroactively. If it had just been a PLR, I would feel differently. But we'll have to agree to disagree. If I start thinking too hard on a Monday, I'll be useless for the rest of the week...

Pmacduff - I notice that our replies were made at nearly the same time, so you may not have seen mine when you replied. Since the Rev. Proc. was meant to clarify the 401(k)(11) code section, I'd feel very comfortable relying on the Rev. Proc. rather than hanging my hat on the 401(k)(11) language. I'm not aware of anything since the Rev. Proc. was issued that would prohibit the rollover.

I think you can rollover from a SIMPLE(k) to another SIMPLE(k). If you look at Revenue Procedure 97-9, Section 3.3(a), it allows rollovers. I haven't followed the code references through to see if it can be rolled to anything other than another SIMPLE(k), but I'm inclined to think it can, as the only reference is to 1.402©(2). Hope this helps.

Carol - thanks for the response. Forgive my being obtuse, but I want to make sure you're saying what I think you are saying. Are you saying that they are still aggregated in the situation where the separate employer is the participant (as in the case of a self employed), or are you saying that they will not be aggregated even in this circumstance? I believe you are saying the former. I need another cup of coffee before I start thinking too hard. Thanks!

The general rule is that the 403(B) is separate - not aggregated. However, take a look at 1.415-8(d)(2), which lists two exceptions, one of which is the situation you describe. Since he owns the sole propretorship, they are aggregated. I agree with Yanikoski that this aggregation isn't changed by EGTRRA.

Yes, I've seen this PLR used as the basis for not allowing universal life in 412(i) plans. It depends upon how far you want to push the envelope, but I wouldn't recommend using UL. You can make an argument that the PLR wasn't thought out all that well - for example, a whole life policy that has a level premium will lapse if the premium isn't paid, so the "guarantees" are only good insofar as you pay the required premium. A UL will do the same - given payment of a certain premium, there will be guaranteed cash value at a given date, such as age 65. But, a UL isn't by definition a "level premium" policy, and this appears to be the issue on which the IRS focused. Since the IRS issued this PLR, and since there is nothing specifically ALLOWING UL in a 412(i), it seems the prudent course of action not to allow it in a plan you administer.

This is a subject about which I know nothing. What's the deal on amending, for example, IRA annuity contracts, which specify a maximum non-rollover contribution of 2000 dollars. Does the IRS provide "snap-on" amendments similar to what they released for qualified plans? What deadlines apply, if any, if such contract language changes are required? I suppose this would apply to 403(B), maybe 457 as well? Thanks.

Even better! Thanks for passing this along.

ERISAweasel - will do. And for all folks reading this thread - I was just speaking with one of my cohorts, who has a friend in a big Washington law firm with "inside" contacts at Treasury. This is now at least third hand, but evidently Treasury said they would have guidance on this by the end of October. Let's hope it's true.

Wow! I had already read the law, committee reports, etc., and reached the conclusion that if the plan limits the participant's deferrals, the catch-up provisions apply. Even after reading the somewhat philosophical discussion on this thread, I remain convinced that is true. I'm not going to rehash my reasoning, because most points of view have been hashed and rehashed, but I'm not losing any sleep over this, because I agree with Bob R. - I could work myself into a frenzy and get nowhere, because IRS guidance is needed, and I believe they will provide it soon - they recognize that folks are grappling with this issue. But this has been interesting reading.

Kirk - interesting interpretation. Personally, I'd say that it's a bit of a stretch. I'm not aware of any regulations, enforcement actions, etc., that have taken this approach. Do you know of any? Did the IRS or DOL ever float any trial balloons on this? Thanks.

Since Revenue Procedure 2001-17, which governs the EPCRS programs, is silent on this issue as far as I know, then I'd say you file as is, then file an amended 5500 as appropriate. But I'd also call the PWBA first to se what they say.

Sorry - I forgot to mention the fact that the loan apparently violates the plan document due to no purchase of the house. Again, this is an operational error which can be corrected under EPCRS.

There are several items to consider - among them: 1. Is this plan subject to QJSA requirements? If not, and if the plan document does not specify that spousal consent is required, then no spousal consent violation has occurred. 2. Does the plan have a "cure" period for late payments? If so, no deemed distribution has occurred until the "cure" period has been violated. 3. If everything turns out rotten re the above, you have an operational error, which can be corrected under EPCRS. Details are very plan/situation specific, so you'd need to look at the proper EPCRS correction very carefully.